What is a Mutual Fund and how does it work?

Basic Information about Mutual Funds| What are Mutual Funds in India?  

Mutual Funds

Nowadays, you may have heard about Mutual Funds in TV commercials as well as from many people and you may have wondered what exactly is a Mutual Fund? How does a mutual fund work? I hope that today's post will remove all the doubts in your mind to some extent. Today we are going to learn about what a mutual fund is. This article is about Mutual Funds for beginners.

What exactly is the difference between Mutual Funds and a Stock Market?

The money that people have for both these things is invested in the capital market in large quantities. So the general public feels the same about Mutual Funds and the stock market. But the difference is, a person can buy whatever he wants in the stock market and he can sell that stock.

In the stock market, only knowledgeable people work at the risk of their money and make more profit. But if you invest in a Mutual Fund, your money is invested in the stock market. In this, you have no right to buy or sell any shares. All that work is done by a mutual fund company.  Here your money pays off more than a bank investment. Also, Mutual Funds explained strong returns to date. 

The risk is lower than the investment in the stock market and the return is lower. The concept of Mutual Funds has come to the market so that all the common people can benefit from the sharp fall in the share price. Since you have very little share capital, you can only invest in shares of limited companies, so the risk is very high. Mutual Funds, on the other hand, have a large amount of money deposited by the general public, so the fund manager of a Mutual Funds invests a small amount of money in different companies, so the risk is less here.

Important Note: - 

Mutual Funds risk depends on the downturn in the stock market. Before investing in a Mutual Fund, you should take all the information and invest the money at your own risk.

What Is Mutual Fund?

Basically, the concept of a Mutual Fund is applied to people who do not want to risk the stock market and do not know much about it. Also, the general public should benefit from the boom in the stock market and be less risky. Simply put, a mutual fund is a lot of people's savings. The money invested in the mutual fund is invested in different places by the company and efforts are made to give maximum benefit to the investor.

What is a mutual fund

Each company hires educated and different professional fund directors to manage their different collective finances. The job of a professional fund director is to take care of that particular fund and invest the plutocrat in the right place. Simply put, its job is to maximize gains by investing people's plutocrats in the right place. Collective fund plutocrat is invested in different companies, not just in one place. Which makes it less likely to lose plutocrats. This is because indeed if one of the companies suffers a loss, the rest of the companies continue to grow during that time, therefore avoiding the threat of further losses. 

How to buy Mutual Funds?

In the moment's internet age there are numerous ways to invest in home-grounded Mutual Funds. You can invest your money in Mutual Funds through numerous Android apps as well as websites. Some of the popular Mutual Funds apps are as follows. Groww App, Paytm Money, ET Money, and numerous agents are doing these jobs.

But I would suggest you go to use the Groww app to invest in Mutual Funds. This is because you don't dodge any fresh charges in this app. This app draws commissions from direct Collective Finances without getting commissions from their guests. All apps will be planted in Playstore for downloading. 

How to Invest in Mutual Funds?

Investors can invest in Mutual Funds in two ways. An investment can be made as a lump sum or a fixed amount per month. A lump sum is a lump sum investment and a lump sum investment is called a SIP (Systematic Investment Plan).

1) Lump Sum

Once this type of investment is invested in a large amount of money, it is not possible to invest in it again and again. The more risk, the more return. If you have a lot of money and you are going to take a little risk, this option will always be beneficial for you.

2) Systematic Investment Plan(SIP)

This is called a systematic investment plan. In this case, the investor regularly invests a certain amount in the Mutual Fund. This period of investment can be per week, per month, or every four months.

Systematic Investment Plan(SIP)

This type of SIP is for people who are doing jobs, etc., and who are paid per month. Such people can invest in a Mutual Fund by setting aside some money from their salary every month as an investment. Among these, one can take advantage of the stock market boom. It is a low-risk and high-return method compared to a lump-sum investment.

What are the types of mutual funds?

Mutual Funds are divided into several categories based on risk, return, size, duration, and investment. These are as follows:-

1) Equity Mutual Funds

This type of equity Mutual Fund is heavily invested in the direct stock market. If you invest your money in such a fund for a short period, you are more likely to incur large losses. But if you are going to invest in equity Mutual Funds for a long time, you will get higher returns from this type of Mutual Fund.

2) Fixed Income funds

This type of Mutual Funds offers a definite return to the investor. There is an investment in which you get a fixed interest in return. This type of Mutual Fund is invested by people who want a higher return than the bank and are not willing to take any risk.

3) Debt Funds

This type of Mutual Funds also has low risk. Investors invest in debentures, government bonds, and other government as well as fixed companies. So the debt fund earns a fixed income.

4) Hybrid Mutual Funds

Hybrid Mutual Funds investments belong to more than one asset. Hybrid Mutual Funds are a combination of both equity and debt funds.

Note: - Regular Growth and Direct-Growth options are available in every mutual fund. What exactly is the difference?

Regular growth involves the agent's commission. The cost per unit is 50 paise to 1 rupee. That cost is taken only once. It doesn't make much difference to a single investor. But for the SIP, there seems to be a big difference.

Since there is no agent in Direct-Growth, there are no charges and the returns are a bit higher. To get a direct growth option, you need to visit the mutual fund's AMC office or invest from their website.

Disclaimer

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